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Asian States to Set Rates

South Korea and four emerging market economies are scheduled to review their monetary policies next week and the eurozone is widely expected to announce more stimulus measures, while the Fed is looking for more reasons to start hiking rates in the near future.

Indications from the US and the eurozone are crucial for others, especially with the dollar rallying to a 12-year high versus a basket of majors recently also weighing on the rest of the forex world, Reuters said.

South Korea, facing deflation risks, is likely to consider another cut in the benchmark interest rate, adding to the 50 basis points reduction in 2014. The Bank of Korea base rate now stands at 2% and the review will be on Thursday.

Indonesia, on the other hand, is seeing inflation rising and therefore, the bias is for upward adjustment in the discount rate. But analysts do not expect a change immediately as Bank Indonesia has done with a 25 basis points hike in November, taking the official rate to 7.75%.

Egypt’s case is similar to Indonesia’s as both the economies have recently cut fuel subsidies and hiked interest rates to curb inflationary pressures stemming from the same.

The Central Bank of Egypt hiked the overnight deposit rate, which is the benchmark rate, by 100 basis points to 9.25% and has since left it unchanged. Indonesia and Egypt too review rates on Thursday and the consensus is for no change while the bias remains upward.

The National Bank of Poland meets to review rates on Wednesday and the bias is for a cut with the country seeing disinflation trend in line with most of its peers in the region. The NBP had slashed the discount rate by 50 basis points to 1.75% last year where it stands now.

With the eurozone set to expand its quantitative easing, other European countries are widely expected to follow suit. Romania has cut the benchmark rate by 25 basis points last week.

Chile will set rates on Friday and the Central Bank of Chile is now in a rate cutting cycle with inflation in decelerating trend. It has cut the overnight interbank interest rate, the main signal rate, 150 basis points in 2014, taking it to 3%.

The inflation rate continued to fall in December and analysts do not rule out additional downside adjustments though not sure about a cut this month itself.

Moody’s Analytics said a modest rebound in the orders is expected as Japan’s corporate sector remains in reasonable shape, with exporters benefiting from a cheaper yen and the upturn in US demand.

Unemployment, Trade

An Australian employment report will also be among the most watched Asian data next week. Australian economy is growing below potential, says Moody’s Analytics, and adds that the jobless rate continued to rise at the end of 2014.

“We expect the December employment report to show a jobless rate of 6.4%, the country’s highest since 2002,” the research firm said in its preview on Friday. The data will be out on Thursday.

The release of the November housing finance data will be another Australian event which will be on Monday.

December unemployment rate due on Tuesday will be a data to watch from South Korea before Thursday’s Bank of Korea rate decision.

Data on Monday may show that India’s industrial output grew 5.5% in November helped by Diwali boost, Moody’s Analytics said. It compares to the October rate of -4.2% when manufacturing output fell 7.6%.

At the same time, India’s trade deficit is likely to have hit a large number in November as exports growth is slow even as relaxation of gold import rules adding to dollar outflow. Trade data is also on Monday.

December unemployment rate due on Tuesday will be a data to watch from South Korea before Thursday’s Bank of Korea rate decision.

Korea’s jobless rate is widely expected to stay near the 3.4-3.5% range, but faced with deflation threat, the country is likely to consider further rate cuts to boost demand.